Question

Ontario Resources, a natural energy supplier, borrowed $80.6 million cash on November 1, 2021, to fund a geological survey. The loan was made by Quebec Banque under a short-term financing arrangement. Ontario Resources issued a 9- month, 12% promissory note with interest payable at maturity. Ontario Resources' fiscal period is the calendar year. Required: 1. Prepare the journal entry for the issuance of the note by Ontario Resources. 2. & 3. Prepare the appropriate adjusting entry for the note by Ontario Resources on December 31, 2021 and journal entry for the payment of the note at maturity.

Answer 1

	Date	General Journal	Debit	Credit
1)	Nov 1, 2021	Cash	$80,600,000	-
		Notes payable	-	$80,600,000
2)	Dec 31, 2021	Interest expense ($80.6 million X 12% X 2/12)	$1,612,000	-
		Interest payable	-	$1,612,000
	Aug 1, 2022	Notes payable	$80,600,000	-
		Interest payable	$1,612,000	-
		Interest expense ($80.6 million X 12% X 7/12)	$8,060,000	-
		Cash	-	$90,272,000